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Farfetch said revenues fell 1.3 per cent year-on-year to $572 million in the second quarter of 2023, missing analyst expectations by 12 per cent. Shares fell 1.75 per cent after market closure on Thursday afternoon.
“It’s important to take a step back and look at the long-term opportunity for Farfetch,” CEO José Neves said. “Since our founding, our strategy has been to build Farfetch to become the global platform for luxury by developing a platform with unrivalled technology, logistics and data capabilities. This strategy remains our North Star.”
The company’s GMV was $1,032.6 million, up 1 per cent year-on-year. This was despite a lag in both the US and China, in a shift from last quarter’s uptick in the two regions.
In the US, GMV performance was in the single-digits. “As in the case of many others in the luxury industry, we have seen a less buoyant luxury customer in the US,” Neves said. Tapestry and Ralph Lauren reported similar US declines as demand remains thin.
China GMV also declined by single digits despite rebounds in travel and spend. “The reality is that the recovery has not been as robust as we had expected when we reported our Q1 results,” Neves said.
Neves addressed recent layoffs, which eliminated 11 per cent of headcount, and said that the company’s recent cost-cutting measures were its most significant in his history. This was instigated by Farfetch’s now non-negotiable priorities for growth: profitability and cash generation. Neves cited 2022’s Russia halt, China slowdown and current macro-volatility in the US as driving forces.
“This June and July, we went even further. We doubled-down and executed the most significant cost rationalisation in our history.” Neves expects the rationalisation — which most recently involves the expulsion of 800 roles and closing Farfetch’s beauty business — to eliminate $150 million through 2023’s fixed costs through the remainder of the year.
Neves confirmed plans to shutter its beauty business at the end of this month, and categorised this as part of Farfetch’s efforts that started in 2022. “This year we are doubling down on that new paradigm of prioritising profitability and cash flow as a non-negotiable,” the CEO said. “Beauty was a decision based on that new approach.”
“We have to make strategic decisions. When we have categories such as hard luxury with incredibly high AOVs and high profitability, versus investing the same dollars in beauty, which has a lower AOV and more challenging profitability and unit economics — it was, in my view, absolutely the right decision.”
Farfetch saw strength in its digital platform sector, which accounts for the company’s marketplace, and returned to growth after a 1 per cent dip last quarter. GMV and revenue were up 7 per cent and 10 per cent, respectively. This was driven by strong underlying growth from the Ferfetch marketplace and double-digit growth from platform solutions, chief financial officer Elliot Jordan said.
Farfetch’s partnerships are also on track, Neves told investors. The CEO said Farfetch is due to launch in Bergdorf Goodman in 2024. As for Yoox Net-A-Porter, it’s still progressing through the planned regulatory approvals processes, following approvals in the UK, China and Italy.
Looking forward, Farfetch expects a group GMV of approximately $4.4 billion, up from $4.1 billion in 2022, and to achieve positive free cash flow — improving from 2022’s negative. This outlook takes into account the fact that the US and China are offsetting other regions’ growth, Neves told investors. “The slower recovery in these two large markets offsetting the strong momentum we continue to expect in most other regions leads us to moderate our second half of 2023 growth expectations for the marketplace,” Neves said.
The CEO remains optimistic.“The digitisation of luxury is in its early beginnings,” Neves says. “Farfetch as a leader at the intersection of technology and luxury is poised for significant growth and profitability. This reinforces our confidence in our previously-stated plans to scale to a $10 billion GMV business, generating approximately $400 billion in adjusted EBITDA and strong free cash flow by 2025.”
Correction: Farfetch s GMV was updated to reflect the accurate figure.
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